business law paper - d. terry final

Running Header: SHOULD COMPANIES BEHAVE ETHICALLY 1

Should companies behave ethically and be held accountable by society for their actions?

Daniel Terry

Southeastern University

SHOULD COMPANIES BEHAVE ETHICALLY 2

Table of Contents

Abstract……………………………………………………………………………………………3

Should Companies Behave Ethically and Be Held Accountable by Society for Their Actions?....4

Overview of Corporate Social Responsibility………………………….…………………………4

Environmental Initiatives……………………………………….…………………………5

Social Initiatives…………………………………………………………………………...5

Theories………………..……………………………………………...…………………...5

Stakeholder Approach Theory…………………………..………………………...5

Corporate Citizenship Theory……………………………………………………..6

Advantages and Disadvantages of CSR…………………………………………………………..6

Advantages………………………………………………………………………………...6

Profitability and Value…………………………………………………………….6

Customer Relations………………………………………………………………..6

Disadvantages……………………………………………………………………………..7

Costs………………………………………………………………………………7

Pressure to Perform………………………………………………………………..7

The Need for CSR…………………………………………………………………………………7

BP and Deepwater Horizon……………………………………………………………….7

Coca-Cola…………………………………………………………………………………8

Application of CSR……………………………………………………………………………….8

IBM………………………………………………………………………………………..8

Conclusion………………………………………………………………………………………...9

References………………………………………………………………………………………..11


Abstract

This paper provides an overview and theories as well as advantages and disadvantages, including

profitability and value, customer relations, costs, and pressure to perform, associated with the

application of corporate social responsibility (CSR) in organizations of all sizes and kinds.

Examples of companies that would be good candidates for CSR initiatives are explored —

BP/Deepwater Horizon and Coca-Cola — as well a company in which CSR initiatives are

already present — IBM.


Should companies behave ethically and be held accountable by society for their actions?

In today’s marketplace, companies worldwide are competing for the top rung of the

corporate ladder. However, determining how to generate the most profits possible while also

doing so ethically and responsibly can surprisingly be a great challenge for many companies.

Especially with the outsourcing of labor to workers in foreign countries becoming even more

commonplace, executives may be tempted to turn a blind eye to issues such as poor labor

conditions or misuse of environmental resources. In order to combat this situation, a movement

known as corporate social responsibility (CSR) has become popular among companies seeking to

demonstrate their concern for the economic, social and environmental impact of their business

operations.

Overview of Corporate Social Responsibility

Corporate social responsibility (CSR), also known as corporate citizenship, is defined as

“a corporation's initiatives to assess and take responsibility for the company's effects on

environmental and social well-being” (“Corporate Social Responsibility Definition,” n.d.). This

typically involves companies adopting codes of ethical conduct, which are enforced not only in

their own operations but also at all suppliers and other entities along their supply chain. These

initiatives promote socially and environmentally conscious business practices that often go

beyond the regulations put into place by environmental agencies and other regulatory bodies

(“Corporate Social Responsibility Definition,” n.d.).

There was a time that CSR initiatives were something only a special niche of

organizations participated in. However, today it is growing ever more popular for executives to

look beyond their fiscal goals and implement CSR initiatives at their companies. Throughout the

world, companies are making environmentally and socially conscious business decisions that


will not only improve the future of the environment and its people but also enhance consumers’

view of participating companies — leading to purchases of their goods and/or services. An

increasing number of companies now report on their initiatives in the area of corporate social

responsibility, with only 2,000 companies reporting in 2008 to nearly 6,000 reporting in 2011

(Blancard, 2012).

Environmental Initiatives

The environmental component of CSR is what is often thought of when people think of

this movement. Multiple companies “go green,” hoping to garner goodwill with consumers.

Even television companies will turn their logo green for a month to remind their audience that

they are trying to reduce their carbon footprint on the world.

Social Initiatives

Another aspect of CSR is community involvement. This goal of CSR can consist of

funding research, donating to the community, and other actions that will positively affect a

community. Many environmental actions can also be considered as considered to be social

initiatives and vice versa.

Theories

There are a variety of theories today focusing on the application of CSR in organizations,

two of the most common being the stakeholder approach and corporate citizenship.

Stakeholder approach theory. The stakeholder approach focuses on a company’s duty

to its shareholders and groups that are affected by the company’s choices and actions — its

stakeholders. A company has to be wary of how its decisions affect its stakeholders. Within this

view, it is possible that in certain circumstances, some of the outside groups may have more at

stake than the shareholders do. The problem that often arises is which group should be


considered to be more important when they have a conflict in interest — that is, if one decision

affects one group and the opposite decision affects another group, which should be the most

important (Clarkson, Miller, & Cross, 2012)?

Corporate citizenship theory. The corporate citizenship theory calls for companies to

behave as good citizens. Under this view, a company should strive for goals that society views as

worthy and work to remedy social issues. “With great power comes great responsibility” — With

the amount of wealth and power a company has, it is responsible to use its influence in a positive

way that will benefit communities (Clarkson, Miller, & Cross, 2012).

Advantages and Disadvantages of CSR

Advantages

Profitability and value. Companies that introduce energy-efficiency and recycling

programs are cutting costs of operations as well as improving the environment. Because a

company is more accountable through its CSR initiatives, its actions often make the company

more appealing to investors, such as mutual funds that incorporate CSR in their process of

selecting stocks. By being more open to shareholders, investor analysts, the media, and local

communities, companies are increasing their value and probability (Kielmas, n.d.).

Customer relations. Consumers are becoming more and more interested in companies

that have a positive reputation. Research has shown that 77 percent of consumers think that a

company should be socially responsible. Research has also shown that consumers will spend 10

percent more for products if the company has a reputation of being socially responsible

(Kielmas, n.d.).


Disadvantages

Costs. A major disadvantage of CSR can be the costs associated with implementing the

initiatives, especially when it comes to small businesses; large companies can often afford

budgeting for CSR implementation and reporting. For small businesses, however, social media

can be a cost-effective way to spread the word about its CSR initiatives to its customers and

community — that is, unless the business decides to hire an employee to manage the social

media efforts full time (Kielmas, n.d.).

Pressure to perform. Companies that implement CSR initiatives are often under

pressure to continue their efforts and even outdo themselves as the years go by. As a result,

greenwashing is a temptation for some firms. Greenwashing occurs when a company says that it

is socially responsible — potentially even devoting money toward marketing itself as such.

However, profit is its primary end game, and its initiatives may be little more than hot air. There

are those who believe that a company has a duty to its shareholders first and foremost. They

believe that CSR is in direct conflict with their belief, and maximizing profits for shareholders

should be the main focus for executives (Kielmas, n.d.).

The Need for CSR

BP and Deepwater Horizon

One example of a company’s actions that negatively impacted not only the environment

itself but also the surrounding communities was the 2010 BP and Deepwater Horizon oil spill. In

addition to the damage caused to marine life, locals and businesses that relied on fishing to make

a living were negatively impacted. Florida’s tourism also took a hit, as visitors avoided beaches

that might have oil and dead animals washing up on shore.


Coca-Cola

Coca-Cola is another corporation that has been shown to abuse workers' rights, according

to the International Labor Rights Forum. Eight union leaders from Coca-Cola bottling plants

located in Colombia were murdered between 1989 and 2002 following protests of the company's

labor practices. In addition, hundreds of other Coca-Cola workers who have joined or considered

joining a Colombian union known as SINALTRAINAL have been kidnapped, tortured, and

detained by paramilitaries who were hired to intimidate workers in order to prevent them from

unionizing (“The 14 Worst Corporate Evildoers,” 2005).

Application of CSR

IBM

Corporate social responsibility is a top company priority at IBM. With more than $3

billion spent each year along its supply chain, IBM’s spending exceeds that of all other

technology companies in this area. As a result, it is important for IBM to set a standard of

excellence in maintaining high ethical standards of behavior at its local offices and along its

supply chain. IBM follows all applicable regulations and laws, but it had also extended its efforts

beyond that by helping develop an industry-specific code of conduct to aid in creating sound

global markets though ethical business practices (“Supply Chain Social Responsibility,” n.d.).

In conjunction with over 100 other electronic services, goods, and software companies

during March 2013, IBM helped develop and then adopted the Electronic Industry Citizenship

Coalition (EICC) code of conduct. The EICC code outlines the minimum social responsibility

standards expected among all suppliers who do business with IBM and the other member

companies (“Supply Chain Social Responsibility,” n.d.). Its standards focus on ethical, social,

and environmental issues common to the electronics industry supply chain. It is reviewed every


three years to determine whether the standards are still effective and relevant (“Code of

Conduct,” n.d.). IBM mandates that its suppliers follow the practices and expectations outlined

in the EICC code, but the company also encourages them to adopt the code and consider joining

the organization as well (“Supply Chain Social Responsibility,” n.d.).

Conclusion

The need for companies of all kinds and sizes to be held accountable by society for

behaving ethically is apparent, and corporate social responsibility initiatives could play an

important role in helping remedy the negative impact of organizations. As companies grow, they

have the potential to impact people, communities, and the environment in a significant — and

often negative — way. Forests might be leveled for the purpose of expansion, and cultures can

drown in a sea of growth. Even though there are companies that have done terrible things in the

name of profit and power, there has been a rise in companies striving to rectify the problems they

or other companies have caused.

Whatever the negative side effects of a company’s decision, they can no longer be

ignored as they once were. Social media is everywhere, and with it, people are becoming better

informed. Because of social media, other media outlets are starting to cover stories that were

before looked over in regard to organizations’ irresponsible actions. Previously, companies were

able to keep their affairs private and could get away with certain actions that they are no longer

able to do so. Companies now need to look forward and cast themselves in a positive light. Many

companies have moved beyond this self-serving mindset and begun focusing on serving others.

Companies are moving beyond the infant stages of CSR and are beginning to bring true

change. They are making positive choices, like “going green,” not only for goodwill but also to

improve the quality of people’s lives and hopefully prolong the environment. Some companies


are starting to understand that consumers are looking for more that just a brand. They are looking

for companies that align with their beliefs. As a result, companies are looking into many

different theories of CSR, which are helping to fine-tune their initiatives.


References

Blancard, D. (2012, May 14). Corporate Social Responsibility in the Supply Chain. Retrieved

May 1, 2016, from

http://www.industryweek.com/articles/corporate_social_responsibility_in_the_supply_c

hain_27347.aspx

Clarkson, K. W., Miller, R. L., & Cross, F. B. (2012). Business law: Text and cases. Mason, OH:

South-Western, CENGAGE Learning.

Code of Conduct. (n.d.) Retrieved May 1, 2016, from

http://www.eiccoalition.org/standards/code-of-conduct/

Corporate Social Responsibility Definition. (n.d.) Retrieved May 1, 2016, from

http://www.investopedia.com/terms/c/corp-social-responsibility.asp

Kielmas, M. (n.d.). Pros and Cons of Corporate Social Responsibility. Retrieved May 1, 2016,

from http://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-

56247.html

Supply Chain Social Responsibility. (n.d.) Retrieved May 1, 2016, from http://www-

03.ibm.com/procurement/proWeb.nsf/ContentDocsByTitle/United+States~Supply+chai

n+social+responsibility

The 14 Worst Corporate Evildoers. (2005, February 12). Retrieved May 1, 2016, from

http://www.laborrights.org/in-the-news/14-worst-corporate-evildoers

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